Chapter 7: Measuring Domestic Output an National Income

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National Income Accounting

Measures the economy's performance by measuring the flows of income and expenditures.

What does the Bureau of Economic Analysis do? (4)

1. Complies the National Income and the product account for the US economy2. Can access the health of the economy3. Track the longrun course of the economy4. Formulate policies that will safeguard and improve the economy's health

Aggregate Output

is the primary measure of the economies performance. (measured by the total output of goods and services)

Gross Domestic Product (GDP) (define and show the two ways to measure it)

defines the aggregate output as the dollar value of all of the goods and services produced within a certain country in a given year. There are 2 ways to measure it1. Expenditure Approach2. Income Approach

Final Goods

any kind of good and or service produced for their final user, not for resale or further processing

Second Hand Sales

Contribute nothing to current production. Excluded from GDP

Intermediate Goods

includes any goods and services produced for resale or refurbish. Also not included in GDP

Multiple Counting

If value of intermediate goods were included in GDP it would cause this, and it woud distort the overall value

Value Added

the market value of the firms output minus the value of the inputs the firm had brought from others

Two ways to look at GDP

1. Expenditure Approach2. Income Approach

Expenditure Approach

sum of all money spent in buying it GDP= C + Ig + G + XnC-Consumption: Includes all expenditures on all durable and non-durable goods and servicesIg- Gross Private Domestic Investigation: all final purchase of machinery, equipment and tools by business enterprises, all construction, and any changes in inventoryG- Government Purchases:expenditures for goods and services that government consumes in order to provide public servicesXn- Net Exports: Exports-Imports of goods and services

Price Index

Measure of the price of a specific good or service called a merket basket in a given year as compared to that of another year[(Price of market basket in specific year)/(price of same market basket in base year)] x 100